The ultimate guide to Company Car Tax

Everything you need to know about Company Car Tax...

  • What is Company Car Tax?
  • When do I have to pay Company Car Tax?
  • How is Company Car Tax calculated?
  • Which cars are best for lower Company Car Tax?
  • Who pays Company Car Tax?

If you’re thinking about getting a company car then it’s more than likely you’ve come across the term Company Car Tax several times in your research.

Chances are, if you’re going to get a company car or van that you drive to and from your workplace, you’ll have to pay Company Car Tax

There’s actually quite a lot to Company Car Tax and if you’re new to the idea of it then it can be quite confusing. Being honest, even if it’s something you have some familiarity with it can seem complicated.

In April 2017, some new rules and regulations were introduced that are important to understand and it’s vital that you know how they will have an impact on you if you have a company car. In 2019 new rules were announced that become active from April 2020. These new regulations will benefit those who decide that they are going to get a company car that is either electric or a low-emission vehicle and we will be going into these in a little more detail later on.

What is Company Car Tax?

We are sure that now you’re here you have quite a few questions about Company Car Tax and what it entails, and that’s one of the questions we’re here to answer.

So, what exactly is Company Car Tax?

It’s pretty self-explanatory really, you get a Benefit-in-Kind, which you will often hear referred to as BiK, from your company (in this case your car) and you have to pay a tax on it. How much you need to pay will depend on three things:

 

  • how much CO2 the vehicle you have been given emits
  • the P11d value of the vehicle
  • the tax bracket you’re in
Magnifying glass being held over a tax bill - UK - company car tax

If you’re in the higher tax bracket, then you’ll have to pay more in Company Car Tax. We’ll go into that in more detail later.

Company Car Tax is essentially a form of income tax that, once upon a time, was based on the price of the car and the mileage. However, in 2002, the way that we measure Company Car Tax changed to include how much CO2 a car emits. The inclusion of CO2 emissions was part of an attempt to encourage companies and drivers to use more environmentally-friendly vehicles.

When do I have to pay Company Car Tax?

If you have a company car or van that you also use for personal journeys which include travelling to and from work, then you will have to pay Company Car Tax.

There are a few exceptions, and these are:

 

  • If you’re one of the Partners in a Partnership
  • If you’re a member of a Limited Liability Partnership (LLP)
  • If you’re a sole trader (you own your own business)
  • If the company car has been adapted for mobility reasons

 

If you’re not doing personal mileage (including your daily commute) or the company vehicle is left on business premises overnight and is being used solely for business purposes – your vehicle could be considered a pool car – then you don’t have to pay Company Car Tax.

How is Company Car Tax calculated?

If you’ve established that you do in fact have to pay company car tax then you’ll need to know how it’s calculated.

Essentially, the amount you will pay will depend on the P11d value of the car, the CO2 emissions and your personal tax bracket. The lower the P11d value and the emissions = the lower your company car tax will be. You can find out exactly how much you will pay on websites such as ComCar.

Man checking over his finances

If you would like to work it out yourself, you can use the formula below:

 

  • Take the P11d value of the vehicle
  • Multiply that by your Company Car Tax rate – this will give you your benefit in kind (BiK) rate
  • Multiply your BiK rate by your personal tax rate (either 20% or 40%) – this is how much you will pay in Company Car Tax.

 

In 2016, the government announced some major changes to the BiK rates on cars to be introduced in April 2017. These changes included the introduction of more bandings for lower emission cars (such as hybrid and electric vehicles). The introduction of these newer bandings showed that vehicles with higher CO2 emissions could end up costing more than they would prior to April 2017.

Changes to BiK Company Car Tax 2020

In mid-2019, HMRC announced that they would be making changes to the bandings for Company Car Tax for 2020/2021, with the most notable change being the introduction of a 0% rate for zero-emission electric vehicles (such as the ever-popular Nissan Leaf and the new Kia e-Niro).

In 2002, when the new bandings were first introduced for lower-emission and zero-emission vehicles, they were much rarer on the roads, so the rate wasn’t quite so generous as it will be from April 2020, and fewer bandings existed, this improved in 2017 and has improved again in 2020.

Cars registered before 6 April 2020
CO2 (g/km)Electric range (miles)2020/21 (%)2021/22 (%)2022/23 (%)
0N/A012
1-50>130222
1-5070-129555
1-5040-69888
1-5030-39121212
1-50<30141414
51-54
151515
55-59
161616
60-64 171717
65-69181818
70-74191919
75-79202020
80-84212121
85-89222222
90-94232323
95-99242424
100-104252525
105-109262626
110-114272727
115-119282828
120-124292929
125-129303030
130-134313131
135-139323232
140-144333333
145-149343434
150-154353535
155-159363636
160+373737
Cars registered from 6 April 2020
CO2 (g/km)Electric range (miles)2020/21 (%)2021/22 (%)2022/23 (%)
0N/A012
1-50>1300012
1-5070-129345
1-5040-696678
1-5030-39101112
1-50<30121314
51-54
131415
55-59
141516
60-64 
151617
65-69
161718
70-74
171819
75-79
181920
80-84
192021
85-89
202122
90-94
212223
95-99
222324
100-104
232425
105-109
242526
110-114
252627
115-119
262728
120-124
272829
125-129
282930
130-134
293031
135-139
303132
140-144
313233
145-149
323334
150-154
333435
155-159
343536
160-164
353637
 165-169
363737
170+
373737

Which cars are the best for low Company Car Tax?

Looking at the tables above, it’s quite obvious that the best cars when it comes to BiK are fully electric, or ultra-low emission vehicles.

However, electric vehicles aren’t for everyone and can be on the pricier side. There are many reasons why you might prefer petrol or diesel with one of the biggest concerns being range anxiety.

When you’re thinking about getting your new company car it’s also worth considering whether getting a van would be more tax-efficient for you and your business.

When it comes to Company Car Tax there are cars that will cost you less than others, these include (but are certainly not limited to):

BMW i3
IS A DIESEL OR PETROL CAR BETTER FOR COMPANY CAR TAX?

Have questions about Company Car Tax?
Find out more in our helpful article.

What are the worst cars for Company Car Tax?

If you’re concerned about how much Company Car Tax you’re going to pay then the vehicles which emit the least CO2 are the best, so it makes sense that the models that emit the most CO2 will be the ones which incur the higher costs when it comes to BiK. There are a considerable number on this list, which include:

Logically, the cars that will cost you the most in Company Car Tax are those that have a combination of high P11d value and high CO2 emissions.

Who pays for Company Car Tax?

Both you and your employer pay for Company Car Tax. As we mentioned earlier, it will come out of your salary the same as ordinary tax so you won’t have to worry about paying for it. However, we recommend you talking to your HR if you have any other queries.

So, that’s Company Car Tax. You pay for it like normal tax, and it’s based on your personal tax banding, how much CO2 your car emits and the P11d value of your chosen company car. It is changing, however, and you could end up paying significantly more for your company car if your BiK rate is lower than your income tax and national insurance contributions.

READY TO LEASE A NEW CAR?

Have questions about getting a company car? We can help…

Rachel Richardson

Rachel has been writing for as long as she can remember. She loves the written word and likes nothing more than to research something until she knows all she can about it.
Rachel Richardson

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